ROBERT HALF INC. 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Certain information contained in Management’s Discussion and Analysis and in other parts of this report may be deemed forward-looking statements regarding events and financial trends that may affect the future operating results or financial positions of Robert Half Inc. (the “Company”). Forward-looking statements are not guarantees or promises that goals or targets will be met. These statements may be identified by words such as “anticipate,” “potential,” “estimate,” “forecast,” “target,” “project,” “plan,” “intend,” “believe,” “expect,” “should,” “could,” “would,” “may,” “might,” “will,” or variations or negatives thereof or by similar or comparable words or phrases. In addition, historical, current, and forward-looking information about the Company’s environmental, social, and governance (“ESG”) and compliance programs, including targets or goals, may not be considered material for the Securities and Exchange Commission (“SEC”) or other mandatory reporting purposes and may be based on standards for measuring progress that are still developing, on internal controls, diligence, or processes that are evolving, on representations reviewed or provided by third parties, and on assumptions that are subject to change in the future. Forward-looking statements are estimates only, based on management’s current expectations, currently available information and current strategy, plans, or forecasts, and involve certain known and unknown risks, uncertainties, and assumptions that are difficult to predict and often beyond our control and are inherently uncertain. Forward-looking statements are subject to risks and uncertainties that could cause actual results, outcomes, or the timing of these results or outcomes, to differ materially from those expressed or implied in the statements. These risks and uncertainties include, but are not limited to, the following: changes to or new interpretations of United States of America (“U.S.”) or international tax regulations; the global financial and economic situation; changes in levels of unemployment and other economic conditions in the U.S. or foreign countries where the Company does business, or in particular regions or industries; reduction in the supply of candidates for contract employment or the Company’s ability to attract candidates; the development, proliferation and adoption of artificial intelligence (“AI”) by the Company and the third parties it serves; the entry of new competitors into the marketplace or expansion by existing competitors; the ability of the Company to maintain existing client relationships and attract new clients in the context of changing economic or competitive conditions; the impact of competitive pressures, including any change in the demand for the Company’s services, on the Company’s ability to maintain its margins; the possibility of the Company incurring liability for its activities, including the activities of its engagement professionals, or for events impacting its engagement professionals on clients’ premises; the possibility that adverse publicity could impact the Company’s ability to attract and retain clients and candidates; the success of the Company in attracting, training, and retaining qualified management personnel and other staff employees; the Company’s ability to comply with governmental regulations affecting personnel services businesses in particular or employer/employee relationships in general; whether there will be ongoing demand for Sarbanes-Oxley or other regulatory compliance services; the Company’s reliance on short-term contracts for a significant percentage of its business; litigation relating to prior or current transactions or activities, including litigation that may be disclosed from time to time in the Company’s SEC filings; the impact of extreme weather conditions on the Company and its candidates and clients; the ability of the Company to manage its international operations and comply with foreign laws and regulations; the impact of fluctuations in foreign currency exchange rates; the possibility that the additional costs the Company will incur as a result of health care or other reform legislation may adversely affect the Company’s profit margins or the demand for the Company’s services; the possibility that the Company’s computer and communications hardware and software systems could be damaged or their service interrupted or the Company could experience a cybersecurity breach; and the possibility that the Company may fail to maintain adequate financial and management controls, and as a result suffer errors in its financial reporting. Additionally, with respect to Protiviti, other risks and uncertainties include the fact that future success will depend on its ability to retain employees and attract clients; there can be no assurance that there will be ongoing demand for broad-based consulting, regulatory compliance, technology services, public sector or other high-demand advisory services; failure to produce projected revenues could adversely affect financial results; and there is the possibility of involvement in litigation relating to prior or current transactions or activities. Because long-term contracts are not a significant part of the Company’s business, future results cannot be reliably predicted by considering past trends or extrapolating past results. Except as required by law, the Company undertakes no obligation to update information in this report, whether as a result of new information, future events, or otherwise, and notwithstanding any historical practice of doing so. Executive Overview Revenue and net income results for the third quarter exceeded management’s expectations, driven by strong results from Protiviti, which posted sequential and year-on-year revenue gains. While client budgets remain constrained and decision cycles extended, business confidence levels are improving, aided by continuing progress on inflation and the beginning of a global rate-cutting cycle. Consistent with this trend, the Company’s recent weekly sequential results in contract talent have reflected increased stability. During the first three quarters of 2024, service revenues were $4.41 billion, a decrease of 10.3% from the prior year. Net income was $197 million, and diluted net income per share was $1.91. 19 Demand for the Company’s contract talent solutions, permanent placement talent solutions, and Protiviti is largely dependent upon general economic and labor trends, both domestically and abroad. The U.S. real gross domestic product increased 2.8% during the first three quarters of 2024, while the unemployment rate increased from 3.7% for December 2023 to 4.1% at the end of the third quarter of 2024. Although sales cycles are still elongated, job openings remain significantly above historical averages, indicating substantial pent-up demand for talent. While the tightness of the labor supply has eased somewhat, the unemployment rate in the U.S. for those with a college degree is still only 2.3%, with rates for many in-demand accounting, finance and IT positions even lower. The Company is confident about its ability to weather the current global macroeconomic environment and its growth prospects as the macro landscape improves. The Company continues to invest in technology and innovation to fuel its core business strategy. The Company’s proprietary “Recruiters plus award-winning AI” strategy offers significant added value to its clients. The Company monitors various economic indicators and business trends in all of the countries in which it operates to anticipate demand for the Company’s services. These trends are evaluated to determine the appropriate level of investment, including personnel, which will best position the Company for success in the current and future global macroeconomic environment. The Company’s investments in headcount are typically structured to proactively support and align with expected revenue growth trends and productivity metrics. Visibility into future revenues is limited not only due to the dependence on macroeconomic and labor market conditions noted above, but also because of the relatively short duration of the Company’s client engagements. Accordingly, the Company’s headcount and other investments are typically assessed on at least a quarterly basis. During the first three quarters of 2024, the Company decreased headcount for its contract talent solutions and permanent placement talent solutions segments, when compared to prior year-end levels. In addition, the full-time headcount for Protiviti increased when compared to prior year-end levels. Critical Accounting Policies and Estimates The Company’s most critical accounting policies and estimates are those that involve subjective decisions or assessments and are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. There were no material changes to the Company’s critical accounting policies or estimates for the nine months ended September 30, 2024. Recent Accounting Pronouncements See Note B—“New Accounting Pronouncements” to the Company’s Condensed Consolidated Financial Statements included under Part I—Item 1 of this report. Results of Operations The Company analyzes its operating results for three reportable segments: contract talent solutions, permanent placement talent solutions, and Protiviti. The contract talent solutions and permanent placement talent solutions segments provide engagement professionals and full-time personnel, respectively, for finance and accounting, technology, marketing and creative, legal, administrative and customer support, and executive search. The Protiviti segment provides internal audit, risk, business, and technology consulting solutions. Demand for the Company’s services is largely dependent upon general economic and labor trends both domestically and abroad. Because of the inherent difficulty in predicting economic trends, future demand for the Company’s services cannot be forecast with certainty. The Company’s talent solutions segments conduct operations through offices in the U.S. and 17 other countries, while Protiviti has offices in the U.S. and 13 other countries. 20 Non-GAAP Financial Measures The financial results of the Company are prepared in conformity with accounting principles generally accepted in the U.S. (“GAAP”) and the rules of the SEC. To help readers understand the Company’s financial performance, the Company supplements its GAAP financial results with the following non-GAAP measures: adjusted gross margin; adjusted selling, general and administrative expenses; combined segment income; and as adjusted revenue growth rates. The following measures: adjusted gross margin and adjusted selling, general and administrative expenses, include gains and losses on investments held to fund the Company’s obligations under employee deferred compensation plans. The Company provides these measures because they are used by management to review its operational results. Combined segment income is income before income taxes, adjusted for interest income and amortization of intangible assets. The Company provides combined segment income because it is how management evaluates performance. As adjusted revenue growth rates represent year-over-year revenue growth rates after removing the impacts on reported revenues from the changes in the number of billing days and foreign currency exchange rates. The Company provides this data because it focuses on the Company’s revenue growth rates attributable to operating activities and aids in evaluating revenue trends over time. The impacts from the changes in billing days and foreign currency exchange rates are calculated as follows: • Billing days impact is calculated by dividing each comparative period’s reported revenues by the number of billing days for that period to arrive at a per billing day amount. Same billing day growth rates are then calculated based on the per billing day amounts. Management calculates a global, weighted-average number of billing days for each reporting period based upon inputs from all countries and all functional specializations and segments. • Foreign currency impact is calculated by retranslating current period international revenues using foreign currency exchange rates from the prior year’s comparable period. The non-GAAP financial measures provided herein may not provide information that is directly comparable to that provided by other companies in the Company’s industry, as other companies may calculate such financial results differently. The Company’s non-GAAP financial measures are not measurements of financial performance under GAAP and should not be considered as alternatives to amounts presented in accordance with GAAP. The Company does not consider these non-GAAP financial measures to be a substitute for, or superior to, the information provided by GAAP financial results. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is provided on the following pages. Refer to Item 3. “Quantitative and Qualitative Disclosures About Market Risk” for further discussion of the impact of foreign currency exchange rates on the Company’s results of operations and financial condition. Three Months Ended September 30, 2024 and 2023 Service Revenues. The Company’s revenues were $1.47 billion for the three months ended September 30, 2024, a decrease of 6.3% compared to $1.56 billion for the three months ended September 30, 2023. Revenues from U.S. operations decreased 5.2% to $1.15 billion (78.2% of total revenue) for the three months ended September 30, 2024, compared to $1.21 billion (77.3% of total revenue) for the three months ended September 30, 2023. Revenues from international operations decreased 10.2% to $319 million (21.8% of total revenue) for the three months ended September 30, 2024, compared to $355 million (22.7% of total revenue) for the three months ended September 30, 2023. Contributing factors for each reportable segment are discussed below in further detail. Contract talent solutions revenues were $831 million for the three months ended September 30, 2024, decreasing by 11.9% compared to revenues of $943 million for the three months ended September 30, 2023. Key drivers of contract talent solutions revenues include average hourly bill rates and the number of hours worked by the Company’s engagement professionals on client engagements. The decrease in contract talent solutions revenues for the three months ended September 30, 2024, was primarily due to a 12.8% decrease in the number of hours worked by the Company’s engagement professionals, partially offset by a 1.4% increase in average bill rates. On an as adjusted basis, contract talent solutions revenues decreased 13.2% for the third quarter of 2024, compared to the third quarter of 2023. In the U.S., revenues in the third quarter of 2024 decreased 12.4% on an as reported basis, and decreased 13.7% on an as adjusted basis, compared to the third quarter of 2023. International revenues for the third quarter of 2024 decreased 10.6% on an as reported basis, and decreased 11.7% on an as adjusted basis compared to the third quarter of 2023. 21 Permanent placement talent solutions revenues were $123 million for the three months ended September 30, 2024, decreasing by 11.9% compared to revenues of $140 million for the three months ended September 30, 2023. Key drivers of permanent placement talent solutions revenues consist of the number of candidate placements and average fees earned per placement. The decrease in permanent placement talent revenues for the three months ended September 30, 2024, was due to a 13.6% decrease in the number of placements, partially offset by a 1.7% increase in average fees earned per placement. On an as adjusted basis, permanent placement talent solutions revenues decreased 13.2% for the third quarter of 2024, compared to the third quarter of 2023. In the U.S., revenues for the third quarter of 2024 decreased 9.0% on an as reported basis, and decreased 10.4% on an as adjusted basis, compared to the third quarter of 2023. International revenues for the third quarter of 2024 decreased 18.6% on an as reported basis and decreased 19.8% on an as adjusted basis, compared to the third quarter of 2023. Historically, demand for permanent placement talent solutions is even more sensitive to economic and labor market conditions than demand for contract talent solutions, and this is expected to continue. Protiviti revenues were $511 million for the three months ended September 30, 2024, increasing by 6.4% compared to revenues of $481 million for the three months ended September 30, 2023. Key drivers of Protiviti revenues are the billable hours worked by consultants on client engagements and average hourly bill rates. The increase in Protiviti revenues for the three months ended September 30, 2024, was due to a 4.4% increase in average hourly bill rates, and a 2.0% increase in billable hours. On an as adjusted basis, Protiviti revenues increased 4.5% for the third quarter of 2024, compared to the third quarter of 2023. In the U.S., revenues in the third quarter of 2024 increased 9.3% on an as reported basis, and increased 7.6% on an as adjusted basis, compared to the third quarter of 2023. International revenues for the third quarter of 2024 decreased 5.6% on an as reported basis and decreased 8.1% on an as adjusted basis, compared to the third quarter of 2023. A reconciliation of the non-GAAP year-over-year revenue growth rates to the as reported year-over-year revenue growth rates for the three months ended September 30, 2024, is presented in the following table: Global United States International Contract talent solutions As Reported -11.9 % -12.4 % -10.6 % Billing Days Impact -1.4 % -1.3 % -1.6 % Currency Impact 0.1 % ― 0.5 % As Adjusted -13.2 % -13.7 % -11.7 % Permanent placement talent solutions As Reported -11.9 % -9.0 % -18.6 % Billing Days Impact -1.4 % -1.4 % -1.6 % Currency Impact 0.1 % ― 0.4 % As Adjusted -13.2 % -10.4 % -19.8 % Protiviti As Reported 6.4 % 9.3 % -5.6 % Billing Days Impact -1.7 % -1.7 % -1.7 % Currency Impact -0.2 % ― -0.8 % As Adjusted 4.5 % 7.6 % -8.1 % Gross Margin . The Company’s gross margin dollars were $572 million for the three months ended September 30, 2024, down 10.8% from $641 million for the three months ended September 30, 2023. Contributing factors for each reportable segment are discussed below in further detail. Gross margin dollars for contract talent solutions represent revenues less costs of services, which consist of payroll, payroll taxes and benefit costs for engagement professionals, and reimbursable expenses. The key drivers of gross margin are: i) pay-bill spreads, which represent the differential between wages paid to engagement professionals and amounts billed to clients; ii) fringe costs, which are primarily composed of payroll taxes and benefit costs; and iii) conversion revenues, which are earned when a contract position converts to a permanent position with the Company’s client. Gross margin dollars for contract talent solutions were $323 million for the three months ended September 30, 2024, decreasing by 13.9% from $375 million for the three months ended September 30, 2023. As a percentage of revenues, gross margin dollars for contract talent solutions were 38.9% in the third quarter of 2024, down from 39.8% in the third quarter of 2023. The decrease in gross margin percentage was primarily due to higher fringe costs and lower pay-bill spreads. 22 Gross margin dollars for permanent placement talent solutions represent revenues less reimbursable expenses. Gross margin dollars for permanent placement talent solutions were $123 million for the three months ended September 30, 2024, down 11.9% from $140 million for the three months ended September 30, 2023. Because reimbursable expenses for permanent placement talent solutions are de minimis, the decrease in gross margin dollars is substantially explained by the decrease in revenues previously discussed. Gross margin dollars for Protiviti represent revenues less costs of services, which consist primarily of professional staff payroll, payroll taxes, benefit costs, and reimbursable expenses. The primary drivers of Protiviti’s gross margin are: i) the relative composition of and number of professional staff and their respective pay and bill rates; and ii) staff utilization, which is the relationship of time spent on client engagements in proportion to the total time available for the Company’s Protiviti staff. Gross margin dollars for Protiviti were $126 million for both the three months ended September 30, 2024 and 2023. As a percentage of revenues, reported gross margin dollars for Protiviti were 24.6% in the third quarter of 2024, down from 26.2% in the third quarter of 2023. As a percentage of revenues, adjusted gross margin dollars for Protiviti were 25.8% in the third quarter of 2024, up from 25.6% in the third quarter of 2023. The Company’s gross margin by reporting segment is summarized as follows (in thousands): Three Months Ended September 30, Relationships As Reported As Adjusted As Reported As Adjusted 2024 2023 2024 2023 2024 2023 2024 2023 Gross Margin Contract talent solutions $ 323,035 $ 375,158 $ 323,035 $ 375,158 38.9 % 39.8 % 38.9 % 39.8 % Permanent placement talent solutions 123,004 139,681 123,004 139,681 99.8 % 99.8 % 99.8 % 99.8 % Protiviti 125,617 126,100 131,707 123,255 24.6 % 26.2 % 25.8 % 25.6 % Total $ 571,656 $ 640,939 $ 577,746 $ 638,094 39.0 % 41.0 % 39.4 % 40.8 % The following tables provide reconciliations of the non-GAAP adjusted gross margin to reported gross margin for the three months ended September 30, 2024 and 2023 (in thousands): Three Months Ended September 30, 2024 Contract Talent Solutions Permanent Placement Talent Solutions Protiviti Total $ % of Revenue $ % of Revenue $ % of Revenue $ % of Revenue Gross Margin As Reported $ 323,035 38.9 % $ 123,004 99.8 % $ 125,617 24.6 % $ 571,656 39.0 % Adjustments (1) — — — — 6,090 1.2 % 6,090 0.4 % As Adjusted $ 323,035 38.9 % $ 123,004 99.8 % $ 131,707 25.8 % $ 577,746 39.4 % Three Months Ended September 30, 2023 Contract Talent Solutions Permanent Placement Talent Solutions Protiviti Total $ % of Revenue $ % of Revenue $ % of Revenue $ % of Revenue Gross Margin As Reported $ 375,158 39.8 % $ 139,681 99.8 % $ 126,100 26.2 % $ 640,939 41.0 % Adjustments (1) — — — — (2,845) (0.6 %) (2,845) (0.2 %) As Adjusted $ 375,158 39.8 % $ 139,681 99.8 % $ 123,255 25.6 % $ 638,094 40.8 % (1) Changes in the Company’s deferred compensation obligations related to Protiviti operations are included in costs of services, while the related investment (income) loss is presented separately. The non-GAAP financial adjustments shown in the table above are to reclassify investment (income) loss from investments held in employee deferred compensation trusts to the same line item that includes the corresponding change in obligation. These adjustments have no impact on income before income taxes. 23 Selling, General and Administrative Expenses . The Company’s selling, general and administrative expenses consist primarily of staff compensation, advertising, variable overhead, depreciation, and occupancy costs. The Company’s reported selling, general and administrative expenses were $511 million for the three months ended September 30, 2024, increasing by 2.8% from $497 million for the three months ended September 30, 2023. As a percentage of revenues, reported selling, general and administrative expenses were 34.9% in the third quarter of 2024, up from 31.8% in the third quarter of 2023. The Company’s adjusted selling, general and administrative expenses were $488 million for the three months ended September 30, 2024, down 4.0% from $508 million for the three months ended September 30, 2023. As a percentage of revenues, adjusted selling, general and administrative expenses were 33.3% in the third quarter of 2024, up from 32.5% in the third quarter of 2023. Contributing factors for each reportable segment are discussed below in further detail. Selling, general and administrative expenses for contract talent solutions, on an as reported basis, were $318 million for the three months ended September 30, 2024, increasing by 3.7% from $307 million for the three months ended September 30, 2023. As a percentage of revenues, reported selling, general and administrative expenses for contract talent solutions were 38.3% in the third quarter of 2024, up from 32.5% in the third quarter of 2023. As a percentage of revenues, adjusted selling, general and administrative expenses for contract talent solutions were 35.8% in the third quarter of 2024, up from 33.6% in the third quarter of 2023, due primarily to negative leverage as revenues decreased as a result of economic conditions during the quarter. Selling, general and administrative expenses for permanent placement talent solutions were $113 million for the three months ended September 30, 2024, decreasing by 5.0% from $119 million for the three months ended September 30, 2023. As a percentage of revenues, reported selling, general and administrative expenses for permanent placement talent solutions were 92.0% in the third quarter of 2024, up from 85.3% in the third quarter of 2023. As a percentage of revenues, adjusted selling, general and administrative expenses for permanent placement were 89.9% in the third quarter of 2024, up from 86.2% in the third quarter of 2023, due primarily to negative leverage as revenues decreased as a result of economic conditions during the quarter. Selling, general and administrative expenses for Protiviti were $80 million for the three months ended September 30, 2024, increasing by 12.4% from $71 million for the three months ended September 30, 2023. As a percentage of revenues, selling, general and administrative expenses for Protiviti services were 15.6% in the third quarter of 2024, up from 14.7% in the third quarter of 2023, due primarily to restructuring charges incurred during the third quarter of 2024. The Company’s selling, general and administrative expenses by reportable segment are summarized as follows (in thousands): Three Months Ended September 30, Relationships As Reported As Adjusted As Reported As Adjusted 2024 2023 2024 2023 2024 2023 2024 2023 Selling, General and Administrative Expenses Contract talent solutions $ 317,727 $ 306,503 $ 297,191 $ 316,683 38.3 % 32.5 % 35.8 % 33.6 % Permanent placement talent solutions 113,421 119,376 110,817 120,626 92.0 % 85.3 % 89.9 % 86.2 % Protiviti 79,638 70,853 79,638 70,853 15.6 % 14.7 % 15.6 % 14.7 % Total $ 510,786 $ 496,732 $ 487,646 $ 508,162 34.9 % 31.8 % 33.3 % 32.5 % The following tables provide reconciliations of the non-GAAP selling, general and administrative expenses to reported selling, general and administrative expenses for the three months ended September 30, 2024 and 2023 (in thousands): Three Months Ended September 30, 2024 Contract Talent Solutions Permanent Placement Talent Solutions Protiviti Total $ % of Revenue $ % of Revenue $ % of Revenue $ % of Revenue Selling, General and Administrative Expenses As Reported $ 317,727 38.3 % $ 113,421 92.0 % $ 79,638 15.6 % $ 510,786 34.9 % Adjustments (1) (20,536) (2.5 %) (2,604) (2.1 %) — — (23,140) (1.6 %) As Adjusted $ 297,191 35.8 % $ 110,817 89.9 % $ 79,638 15.6 % $ 487,646 33.3 % 24 Three Months Ended September 30, 2023 Contract Talent Solutions Permanent Placement Talent Solutions Protiviti Total $ % of Revenue $ % of Revenue $ % of Revenue $ % of Revenue Selling, General and Administrative Expenses As Reported $ 306,503 32.5 % $ 119,376 85.3 % $ 70,853 14.7 % $ 496,732 31.8 % Adjustments (1) 10,180 1.1 % 1,250 0.9 % — — 11,430 0.7 % As Adjusted $ 316,683 33.6 % $ 120,626 86.2 % $ 70,853 14.7 % $ 508,162 32.5 % (1) Changes in the Company’s employee deferred compensation plan obligations related to talent solutions operations are included in selling, general and administrative expenses, while the related investment (income) loss is presented separately. The non-GAAP financial adjustments shown in the table above are to reclassify investment (income) loss from investments held in employee deferred compensation trusts to the same line item that includes the corresponding change in obligation. These adjustments have no impact on income before income taxes. (Income) Loss from Investments Held in Employee Deferred Compensation Trusts . Under the Company’s employee deferred compensation plans, employees direct the investment of their account balances, and the Company invests amounts held in the associated investment trusts consistent with these directions. As realized and unrealized investment gains and losses occur, the Company’s employee deferred compensation plan obligations change and adjustments are recorded in selling, general and administrative expenses, or in the case of Protiviti, costs of services. This incremental expense is completely offset by investment income related to the employee deferred compensation trust. The value of the related investment trust assets also changes by the equal and offsetting amount, leaving no net costs to the Company. The Company’s (income) loss from investments held in employee deferred compensation trusts consists primarily of unrealized and realized gains and losses, and dividend income from trust investments and is presented separately on the unaudited Condensed Consolidated Statements of Operations. The Company’s (income) loss from investments held in employee deferred compensation trusts was income of $29 million and a loss of $14 million for the three months ended September 30, 2024 and 2023, respectively. The income from trust investments during the third quarter of 2024 was due to positive market returns. Income Before Income Taxes and Segment Income. The Company’s total income before income taxes was $95 million, or 6.5% of revenues, for the three months ended September 30, 2024, down from $136 million, or 8.7% of revenues, for the three months ended September 30, 2023. Combined segment income was $90 million, or 6.2% of revenues, for the three months ended September 30, 2024, down from $130 million, or 8.3% of revenues, for the three months ended September 30, 2023. The Company’s non-GAAP combined segment income is summarized as follows (in thousands): Three Months Ended September 30, 2024 % of Revenue 2023 % of Revenue Combined Segment Income Contract talent solutions $ 25,844 3.1 % $ 58,475 6.2 % Permanent placement talent solutions 12,187 9.9 % 19,055 13.6 % Protiviti 52,069 10.2 % 52,402 10.9 % Total $ 90,100 6.2 % $ 129,932 8.3 % The following table provides a reconciliation of the non-GAAP combined segment income to reported income before income taxes for the three months ended September 30, 2024 and 2023 (in thousands): Three Months Ended September 30, 2024 % of Revenue 2023 % of Revenue Income before income taxes $ 95,186 6.5 % $ 136,343 8.7 % Interest income, net (5,391) (0.3 %) (7,131) (0.4 %) Amortization of intangible assets 305 0.0 % 720 0.0 % Combined segment income $ 90,100 6.2 % $ 129,932 8.3 % 25 Provision for income taxes . The provision for income taxes was 31.2% and 29.9% for the three months ended September 30, 2024 and 2023, respectively. The higher tax rate for 2024 can primarily be attributed to the impact of nondeductible expenses. In 2021, the Organization for Economic Co-operation and Development established an inclusive framework on base erosion and profit shifting and agreed on a two-pillar solution (“Pillar Two”) to global taxation, focusing on global profit allocation and a 15% global minimum effective tax rate. The Company continues to monitor developments and evaluate any potential tax impacts from Pillar Two. There were no material impacts for the three months ended September 30, 2024, nor are any expected throughout the remainder of 2024. Nine Months Ended September 30, 2024 and 2023 Service Revenues. The Company’s revenues were $4.41 billion for the nine months ended September 30, 2024, a decrease of 10.3% compared to $4.92 billion for the nine months ended September 30, 2023. Revenues from U.S. operations decreased 10.0% to $3.44 billion (77.9% of total revenue) for the nine months ended September 30, 2024, compared to $3.82 billion (77.7% of total revenue) for the nine months ended September 30, 2023. Revenues from international operations decreased 11.1% to $976 million (22.1% of total revenue) for the nine months ended September 30, 2024, compared to $1.10 billion (22.3% of total revenue) for the nine months ended September 30, 2023. Contributing factors for each reportable segment are discussed below in further detail. Contract talent solutions revenues were $2.57 billion for the nine months ended September 30, 2024, decreasing by 14.5% compared to revenues of $3.01 billion for the nine months ended September 30, 2023. Key drivers of contract talent solutions revenues include average hourly bill rates and the number of hours worked by the Company’s engagement professionals on client engagements. The decrease in contract talent solutions revenues for the nine months ended September 30, 2024, was primarily due to a 15.3% decrease in the number of hours worked by the Company’s engagement professionals, partially offset by a 1.6% increase in average bill rates. On an as adjusted basis, contract talent solutions revenues in the first three quarters of 2024 decreased 14.7% compared to the first three quarters of 2023. In the U.S., revenues in the first three quarters of 2024 decreased 15.9% on an as reported basis, and decreased 16.2% on an as adjusted basis, compared to the first three quarters of 2023. International revenues for the first three quarters of 2024 decreased 9.6% on an as reported basis, and decreased 9.5% on an as adjusted basis, compared to the first three quarters of 2023. Permanent placement talent solutions revenues were $379 million for the nine months ended September 30, 2024, decreasing by 15.0% compared to revenues of $446 million for the nine months ended September 30, 2023. Key drivers of permanent placement talent solutions revenues consist of the number of candidate placements and average fees earned per placement. The decrease in permanent placement staffing revenues for the nine months ended September 30, 2024, was due to an 18.0% decrease in the number of placements, partially offset by a 3.0% increase in average fees earned per placement. On an as adjusted basis, permanent placement talent solutions revenues decreased 15.1% for the first three quarters of 2024, compared to the first three quarters of 2023. In the U.S., revenues for the first three quarters of 2024 decreased 13.5% on an as reported basis, and decreased 13.8% on an as adjusted basis, compared to the first three quarters of 2023. International revenues for the first three quarters of 2024 decreased 18.6% on an as reported basis, and decreased 18.4% on an as adjusted basis, compared to the first three quarters of 2023. Historically, demand for permanent placement talent solutions is even more sensitive to economic and labor market conditions than demand for contract talent solutions and this is expected to continue. Protiviti revenues were $1.46 billion for the nine months ended September 30, 2024, decreasing by 0.3% compared to revenues of $1.47 billion for the nine months ended September 30, 2023. Key drivers of Protiviti revenues are the billable hours worked by consultants on client engagements and average hourly bill rates. The decrease in Protiviti revenues for the nine months ended September 30, 2024, was due to a 3.0% decrease in billable hours, partially offset by a 2.7% increase in average hourly bill rates. On an as adjusted basis, Protiviti revenues decreased 0.6% for the first three quarters of 2024, compared to the first three quarters of 2023. In the U.S., revenues in the first three quarters of 2024 increased 2.5% on an as reported basis, and increased 2.1% on an as adjusted basis, compared to the first three quarters of 2023. International revenues in the first three quarters of 2024 decreased 11.2% on an as reported basis, and decreased 11.5% on an as adjusted basis, compared to the first three quarters of 2023. 26 A reconciliation of the non-GAAP year-over-year revenue growth rates to the as reported year-over-year revenue growth rates for the nine months ended September 30, 2024, is presented in the following table: Global United States International Contract talent solutions As Reported -14.5 % -15.9 % -9.6 % Billing Days Impact -0.3 % -0.3 % -0.4 % Currency Impact 0.1 % ― 0.5 % As Adjusted -14.7 % -16.2 % -9.5 % Permanent placement talent solutions As Reported -15.0 % -13.5 % -18.6 % Billing Days Impact -0.3 % -0.3 % -0.4 % Currency Impact 0.2 % ― 0.6 % As Adjusted -15.1 % -13.8 % -18.4 % Protiviti As Reported -0.3 % 2.5 % -11.2 % Billing Days Impact -0.3 % -0.4 % -0.4 % Currency Impact 0.0 % ― 0.1 % As Adjusted -0.6 % 2.1 % -11.5 % Gross Margin . The Company’s gross margin dollars were $1.71 billion for the nine months ended September 30, 2024, down 14.0% from $1.99 billion for the nine months ended September 30, 2023. Contributing factors for each reportable segment are discussed below in further detail. Gross margin dollars for contract talent solutions represent revenues less costs of services, which consist of payroll, payroll taxes and benefit costs for engagement professionals, and reimbursable expenses. The key drivers of gross margin are: i) pay-bill spreads, which represent the differential between wages paid to engagement professionals and amounts billed to clients; ii) fringe costs, which are primarily composed of payroll taxes and benefit costs; and iii) conversion revenues, which are earned when a contract position converts to a permanent position with the Company’s client. Gross margin dollars for contract talent solutions were $1.01 billion for the nine months ended September 30, 2024, down 15.7% from $1.20 billion for the nine months ended September 30, 2023. As a percentage of revenues, gross margin dollars for contract talent solutions were 39.3% in the first three quarters of 2024, down from 39.8% in the first three quarters of 2023. The decrease in gross margin percentage was primarily due to higher fringe costs and lower pay-bill spreads. Gross margin dollars for permanent placement talent solutions represent revenues less reimbursable expenses. Gross margin dollars for permanent placement talent solutions were $378 million for the nine months ended September 30, 2024, down 15.0% from $445 million for the nine months ended September 30, 2023. Because reimbursable expenses for permanent placement talent solutions are de minimis, the decrease in gross margin dollars is substantially explained by the decrease in revenues previously discussed. Gross margin dollars for Protiviti represent revenues less costs of services, which consist primarily of professional staff payroll, payroll taxes, benefit costs, and reimbursable expenses. The primary drivers of Protiviti’s gross margin are: i) the relative composition of and number of professional staff and their respective pay and bill rates; and ii) staff utilization, which is the relationship of time spent on client engagements in proportion to the total time available for the Company’s Protiviti staff. Gross margin dollars for Protiviti were $323 million for the nine months ended September 30, 2024, down 7.3% from $348 million for the nine months ended September 30, 2023. As a percentage of revenues, reported gross margin dollars for Protiviti were 22.1% in the first three quarters of 2024, down from 23.8% in the first three quarters of 2023. As a percentage of revenues, adjusted gross margin dollars for Protiviti were 23.3% in the first three quarters of 2024, down from 24.3% in the first three quarters of 2023. The year-over-year decrease in adjusted gross margin percentage was primarily due to the relative composition of and number of professional staff and their respective pay and bill rates 27 The Company’s gross margin by reportable segment are summarized as follows: (in thousands): Nine Months Ended September 30, Relationships As Reported As Adjusted As Reported As Adjusted 2024 2023 2024 2023 2024 2023 2024 2023 Gross Margin Contract talent solutions $ 1,009,766 $ 1,197,419 $ 1,009,766 $ 1,197,419 39.3 % 39.8 % 39.3 % 39.8 % Permanent placement talent solutions 378,353 445,051 378,353 445,051 99.8 % 99.8 % 99.8 % 99.8 % Protiviti 323,013 348,370 340,690 355,621 22.1 % 23.8 % 23.3 % 24.3 % Total $ 1,711,132 $ 1,990,840 $ 1,728,809 $ 1,998,091 38.8 % 40.5 % 39.2 % 40.6 % The following tables provide reconciliations of the non-GAAP adjusted gross margin to reported gross margin for the nine months ended September 30, 2024 and 2023 (in thousands): Nine Months Ended September 30, 2024 Contract Talent Solutions Permanent Placement Talent Solutions Protiviti Total $ % of Revenue $ % of Revenue $ % of Revenue $ % of Revenue Gross Margin As Reported $ 1,009,766 39.3 % $ 378,353 99.8 % $ 323,013 22.1 % $ 1,711,132 38.8 % Adjustments (1) — — — — 17,677 1.2 % 17,677 0.4 % As Adjusted $ 1,009,766 39.3 % $ 378,353 99.8 % $ 340,690 23.3 % $ 1,728,809 39.2 % Nine Months Ended September 30, 2023 Contract Talent Solutions Permanent Placement Talent Solutions Protiviti Total $ % of Revenue $ % of Revenue $ % of Revenue $ % of Revenue Gross Margin As Reported $ 1,197,419 39.8 % $ 445,051 99.8 % $ 348,370 23.8 % $ 1,990,840 40.5 % Adjustments (1) — — — — 7,251 0.5 % 7,251 0.1 % As Adjusted $ 1,197,419 39.8 % $ 445,051 99.8 % $ 355,621 24.3 % $ 1,998,091 40.6 % (1) Changes in the Company’s deferred compensation obligations related to Protiviti operations are included in costs of services, while the related investment income is presented separately. The non-GAAP financial adjustments shown in the table above are to reclassify investment income from investments held in employee deferred compensation trusts to the same line item that includes the corresponding change in obligation. These adjustments have no impact on income before income taxes. Selling, General and Administrative Expenses . The Company’s selling, general and administrative expenses consist primarily of staff compensation, advertising, variable overhead, depreciation, and occupancy costs. The Company’s reported selling, general and administrative expenses were $1.53 billion for the nine months ended September 30, 2024, down 3.6% from $1.59 billion for the nine months ended September 30, 2023. As a percentage of revenues, reported selling, general and administrative expenses were 34.7% in the first three quarters of 2024, up from 32.3% in the first three quarters of 2023. The Company’s adjusted selling, general and administrative expenses were $1.46 billion for the nine months ended September 30, 2024, down 6.1% from $1.56 billion for the nine months ended September 30, 2023. As a percentage of revenues, adjusted selling, general and administrative expenses were 33.1% in the first three quarters of 2024, up from 31.6% in the first three quarters of 2023. Contributing factors for each reportable segment are discussed below in further detail. Selling, general and administrative expenses for contract talent solutions, on an as-reported basis, were $958 million for the nine months ended September 30, 2024, decreasing by 2.8% from $986 million for the nine months ended September 30, 2023. As a percentage of revenues, reported selling, general and administrative expenses for contract talent solutions were 37.2% in the first three quarters of 2024, up from 32.8% in the first three quarters of 2023. Selling, general and administrative expenses for contract talent solutions, on an adjusted basis, were $896 million for the nine months ended September 30, 2024, down 6.3% from $955 million for the nine months ended September 30, 2023. As a percentage of revenues, adjusted selling, general and administrative expenses for contract talent solutions were 34.8% in the first three quarters of 2024, up from 31.8% in the first three quarters of 2023, due primarily to negative leverage as revenues decreased as a result of economic conditions. 28 Selling, general and administrative expenses for permanent placement talent solutions were $346 million for the nine months ended September 30, 2024, decreasing by 9.8% from $384 million for the nine months ended September 30, 2023. As a percentage of revenues, reported selling, general and administrative expenses for permanent placement talent solutions were 91.3% in the first three quarters of 2024, up from 86.1% in the first three quarters of 2023. As a percentage of revenues, adjusted selling, general and administrative expenses for permanent placement talent solutions were 89.2% in the first three quarters of 2024, up from 85.3% in the first three quarters of 2023, due primarily to negative leverage as revenues decreased as a result of economic conditions. Selling, general and administrative expenses for Protiviti were $229 million for the nine months ended September 30, 2024, increasing by 3.6% from $221 million for the nine months ended September 30, 2023. As a percentage of revenues, selling, general and administrative expenses for Protiviti were 15.6% in the first three quarters of 2024, up from 15.1% in the first three quarters of 2023. The Company’s selling, general and administrative expenses by reportable segment are summarized as follows (in thousands): Nine Months Ended September 30, Relationships As Reported As Adjusted As Reported As Adjusted 2024 2023 2024 2023 2024 2023 2024 2023 Selling, General and Administrative Expenses Contract talent solutions $ 958,201 $ 985,967 $ 895,658 $ 955,482 37.2 % 32.8 % 34.8 % 31.8 % Permanent placement talent solutions 346,282 384,066 338,163 380,439 91.3 % 86.1 % 89.2 % 85.3 % Protiviti 228,730 220,832 228,730 220,832 15.6 % 15.1 % 15.6 % 15.1 % Total $ 1,533,213 $ 1,590,865 $ 1,462,551 $ 1,556,753 34.7 % 32.3 % 33.1 % 31.6 % The following tables provide reconciliations of the non-GAAP selling, general and administrative expenses to reported selling, general and administrative expenses for the nine months ended September 30, 2024 and 2023 (in thousands): Nine Months Ended September 30, 2024 Contract Talent Solutions Permanent Placement Talent Solutions Protiviti Total $ % of Revenue $ % of Revenue $ % of Revenue $ % of Revenue Selling, General and Administrative Expenses As Reported $ 958,201 37.2 % $ 346,282 91.3 % $ 228,730 15.6 % $ 1,533,213 34.7 % Adjustments (1) (62,543) (2.4 %) (8,119) (2.1 %) — — (70,662) (1.6 %) As Adjusted $ 895,658 34.8 % $ 338,163 89.2 % $ 228,730 15.6 % $ 1,462,551 33.1 % Nine Months Ended September 30, 2023 Contract Talent Solutions Permanent Placement Talent Solutions Protiviti Total $ % of Revenue $ % of Revenue $ % of Revenue $ % of Revenue Selling, General and Administrative Expenses As Reported $ 985,967 32.8 % $ 384,066 86.1 % $ 220,832 15.1 % $ 1,590,865 32.3 % Adjustments (1) (30,485) (1.0 %) (3,627) (0.8 %) — — (34,112) (0.7 %) As Adjusted $ 955,482 31.8 % $ 380,439 85.3 % $ 220,832 15.1 % $ 1,556,753 31.6 % (1) Changes in the Company’s employee deferred compensation plan obligations related to talent solutions operations are included in selling, general and administrative expenses, while the related investment income is presented separately. The non-GAAP financial adjustments shown in the table above are to reclassify investment income from investments held in employee deferred compensation trusts to the same line item that includes the corresponding change in obligation. These adjustments have no impact on income before income taxes. 29 (Income) Loss from Investments Held in Employee Deferred Compensation Trusts . Under the Company’s employee deferred compensation plans, employees direct the investment of their account balances, and the Company invests amounts held in the associated investment trusts consistent with these directions. As realized and unrealized investment gains and losses occur, the Company’s employee deferred compensation plan obligations change and adjustments are recorded in selling, general and administrative expenses, or in the case of Protiviti, costs of services. The value of the related investment trust assets also changes by the equal and offsetting amount, leaving no net costs to the Company. The Company’s income from investments held in employee deferred compensation trusts consists primarily of unrealized and realized gains and losses, and dividend income from trust investments and is presented separately on the unaudited Condensed Consolidated Statements of Operations. The Company’s income from investments held in employee deferred compensation trusts was $88 million and $41 million for the nine months ended September 30, 2024 and 2023, respectively. The income from trust investments was due to positive market returns during the first three quarters of 2024. Income Before Income Taxes and Segment Income. The Company’s total income before income taxes was $282 million, or 6.4% of revenues, for the nine months ended September 30, 2024, down from $456 million, or 9.3% of revenues, for the nine months ended September 30, 2023. Combined segment income was $266 million, or 6.0% of revenues, for the nine months ended September 30, 2024, down from $441 million, or 9.0% of revenues, for the nine months ended September 30, 2023. The Company’s non-GAAP combined segment income is summarized as follows (in thousands): Nine Months Ended September 30, 2024 % of Revenue 2023 % of Revenue Combined Segment Income Contract talent solutions $ 114,108 4.4 % $ 241,937 8.0 % Permanent placement talent solutions 40,190 10.6 % 64,612 14.5 % Protiviti 111,960 7.7 % 134,789 9.2 % Total $ 266,258 6.0 % $ 441,338 9.0 % The following table provides a reconciliation of the non-GAAP combined segment income to reported income before income taxes for the nine months ended September 30, 2024, and 2023 (in thousands): Nine Months Ended September 30, 2024 % of Revenue 2023 % of Revenue Income before income taxes $ 282,335 6.4 % $ 456,452 9.3 % Interest income, net (16,990) (0.4 %) (17,276) (0.3) % Amortization of intangible assets 913 0.0 % 2,162 0.0 % Combined segment income $ 266,258 6.0 % $ 441,338 9.0 % Provision for income taxes . The provision for income taxes was 30.1% and 29.1% for the nine months ended September 30, 2024 and 2023, respectively. The higher tax rate for 2024 can primarily be attributed to the impact of nondeductible expenses. Liquidity and Capital Resources The change in the Company’s liquidity during the nine months ended September 30, 2024 and 2023, is primarily the net effect of funds generated by operations and the funds used for capital expenditures, investment in employee deferred compensation trusts, net of redemptions from employee deferred compensation trusts, repurchases of common stock, and payment of dividends. Cash and cash equivalents were $570 million and $729 million at September 30, 2024 and 2023, respectively. Operating activities provided cash flows of $255 million during the nine months ended September 30, 2024, partially offset by $58 million and $362 million of net cash used in investing activities and financing activities, respectively. Operating activities provided cash flows of $522 million during the nine months ended September 30, 2023, offset by $91 million and $354 million of net cash used in investing activities and financing activities, respectively. Fluctuations in foreign currency exchange rates had the effect of increasing reported cash and cash equivalents by $3 million during the nine months ended September 30, 2024, compared to a decrease of $6 million during the nine months ended September 30, 2023. 30 Operating activities—Net cash provided by operating activities for the nine months ended September 30, 2024, was composed of net income of $197 million adjusted upward for non-cash items of $27 million and net cash provided by changes in working capital of $31 million. Net cash provided by operating activities for the nine months ended September 30, 2023, was composed of net income of $324 million adjusted upward for non-cash items of $75 million and net cash provided by changes in working capital of $123 million. Investing activities—Cash used in investing activities for the nine months ended September 30, 2024, was $58 million. This was composed of capital expenditures of $42 million and investments in employee deferred compensation trusts of $50 million, partially offset by proceeds from employee deferred compensation trust redemptions of $34 million. Cash used in investing activities for the nine months ended September 30, 2023, was $91 million. This was composed of capital expenditures of $34 million, investments in employee deferred compensation trusts of $89 million, and $1 million in payments related to an acquisition, partially offset by proceeds from employee deferred compensation trust redemptions of $33 million. Capital expenditures, including $23 million for cloud computing arrangements, for the nine months ended September 30, 2024, totaled $65 million, approximately 58% of which represented investments in software initiatives and technology infrastructure, both of which are important to the Company’s sustainability and future growth opportunities. Capital expenditures for cloud computing arrangements are included in cash flows from operating activities on the Company’s Condensed Consolidated Statements of Cash Flows. Capital expenditures included amounts spent on tenant improvements and furniture and equipment in the Company’s leased offices. The Company currently expects that 2024 capital expenditures will range from $80 million to $90 million, of which $45 million to $55 million relates to software initiatives and technology infrastructure, including capitalized costs related to implementation of cloud computing arrangements. Financing activities—Cash used in financing activities for the nine months ended September 30, 2024, was $362 million. This included repurchases of $196 million in common stock and $166 million in dividends paid to stockholders. Cash used in financing activities for the nine months ended September 30, 2023, was $354 million. This included repurchases of $199 million in common stock and $155 million in dividends paid to stockholders. As of September 30, 2024, the Company is authorized to repurchase, from time to time, up to 8.3 million additional shares of the Company’s common stock on the open market or in privately negotiated transactions, depending on market conditions. During the nine months ended September 30, 2024 and 2023, the Company repurchased 2.5 million shares, at a cost of $171 million, and 2.4 million shares, at a cost of $175 million, on the open market, respectively. Additional stock repurchases were made in connection with employee stock plans, whereby Company shares were tendered by employees for the payment of exercise price and applicable statutory withholding taxes. During the nine months ended September 30, 2024 and 2023, such repurchases totaled 0.3 million shares, at a cost of $22 million, and 0.3 million shares, at a cost of $22 million, respectively. Repurchases of shares have been funded with cash generated from operations. The Company’s working capital at September 30, 2024, included $570 million in cash and cash equivalents, and $885 million in net accounts receivable, both of which will be a significant source of ongoing liquidity and financial resilience. The Company expects that internally generated cash will be sufficient to support the working capital needs of the Company, the Company’s fixed payments, dividends, and other obligations on both a short-term and long-term basis. There is limited visibility into future cash flows as the Company’s revenues and net income are largely dependent on macroeconomic conditions. The Company’s variable direct costs related to its contract talent solutions business will largely fluctuate in relation to its revenues. The Company has an unsecured revolving credit facility (the “Credit Agreement”) of $100.0 million, which matures in May 2026. Borrowings under the Credit Agreement will bear interest in accordance with the terms of the borrowing and will be calculated according to the adjusted term Secured Overnight Financing Rate (“SOFR”), or an alternative base rate, plus an applicable margin. The Credit Agreement is subject to certain financial covenants, and the Company was in compliance with these covenants as of September 30, 2024. There were no borrowings under the Credit Agreement as of September 30, 2024, or December 31, 2023. On October 29, 2024, the Company announced a quarterly dividend of $0.53 per share to be paid to all shareholders of record as of November 25, 2024. The dividend will be paid on December 13, 2024. 31 Material Cash Requirements from Contractual Obligations Leases. As of September 30, 2024, the Company reported current and long-term operating lease liabilities of $66 million and $173 million, respectively. These balances consist of the minimum rental commitments for October 2024 and thereafter, discounted to reflect the Company’s cost of borrowing, under noncancellable lease contracts executed as of September 30, 2024. The majority of these leases are for real estate. In the event the Company vacates a location prior to the end of the lease term, the Company may be obliged to continue making lease payments. For further information, see Note G—“Leases” to the Company’s Condensed Consolidated Financial Statements included under Part I—Item 1 of this report. Purchase Obligations. Purchase obligations are discussed in more detail in Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no material changes to the Company’s contractual purchase obligations during the first three quarters of 2024. Employee Deferred Compensation Plan. As of September 30, 2024, the Company reported employee deferred compensation plan obligations of $664 million in its accompanying unaudited Condensed Consolidated Statements of Financial Position. The balances are due to employees based upon elections they make at the time of deferring their funds. The timing of these payments may change based upon factors including termination of the Company’s employment arrangement with a participant. These obligations are funded through contributions to investment trusts, whose assets as of September 30, 2024, were substantially equal to the obligations. Assets of these plans are held by an independent trustee for the sole benefit of participating employees and consist of money market funds and mutual funds. For further information, see Note J—“Employee Deferred Compensation Plan Obligations” to the Company’s Condensed Consolidated Financial Statements included under Part I—Item 1 of this report.